Payment processing unveils a promising and swiftly expanding business terrain. Whether your business thrives in the digital realm or stands as a local brick-and-mortar entity, the indispensability of a trustworthy payment processing provider remains clear. This article dives into the nuances of how to start a PSP.
Lately, there has been a marked uptick in activity within the realm of payment processing. With more customers gravitating towards online platforms for their shopping experiences, the industry stands on the brink of even more substantial growth in the years that lie ahead. Forecasts paint a compelling picture, projecting a robust Compound Annual Growth Rate (CAGR) of 19.4% from the present moment until the horizon of 2028, underscoring the bright prospects awaiting the payment processing landscape.
How does a PSP work?
Finance companies have a variety of payment processing services at their disposal for businesses. Options include payment service provider, payment facilitator, payment gateway, and payment processor. It’s crucial to decide on the specific type of service you aim to offer. Some payment processors function solely as gateways, while others evolve into acquirer banks, forming partnerships with major card networks like Visa or Mastercard.
When maneuvering through this terrain, two additional routes merit consideration: one involves transitioning into a payment service provider (PSP), while the other entails becoming a payment facilitator. Each role involves a distinct registration process and is subject to specific regulations, providing a framework for standardizing online payment processing activities.
Payment Service Provider functions as a specialized entity within the payment processing sector, catering to businesses with a comprehensive array of payment-related services and solutions. The term PSP typically covers entities that extend their scope beyond fundamental payment processing. These companies provide a spectrum of services, including solutions for payment gateways, multi-currency support, measures for preventing fraud, customer assistance, and the handling of recurring payments. However, it’s worth noting that some payment processing companies also extend similar services, and the specific offerings can vary among different entities.
Key elements to consider when starting a PSP
Opening a PSP involves a series of crucial steps that shape the foundation of your venture.
First up is finding a software partner you can rely on. While creating a solution from scratch may seem like the go-to move, the hefty price tag might make you wince. Teaming up with a savvy tech partner, like a reliable software vendor, can smooth out the wrinkles when you launch a PSP company.
Now, let’s talk infrastructure – the nuts and bolts of your operation. Getting the right gear and setting up a solid foundation are key. Think console servers, DNS/account controls, system repositories, and all the techy bits that make the magic happen. It’s like assembling your superhero squad – each member has a role to play.
Seeking guidance from seasoned experts can assist in refining this configuration and ensuring compliance with the regulatory standards needed to open a PSP company.
Establishing a cohesive team is the next step. You require a dedicated crew to manage the intricate details while you take the helm. Techies, financial experts, sales, and customer support – they’re your backbone. Don’t forget the AML compliance team.
Time for a pivotal move – getting your Electronic Money Institution (EMI) or Payment Institution (PI) license. It’s like getting your passport to the payment acceptance world. EMIs can mint their own digital money, while PIs are the maestros conducting payments without holding customers’ funds.
Your software must dance to the PCI DSS Level 1 beat, so it’s certified and ready. Remember to brush up on the local laws; some countries like to keep their data close to home.
Now, let’s wrap it up with a touch of integration with acquirers. They check in with the card issuer, get the nod from the bank, and green-light the transaction.
Primary approaches to starting a PSP
Exploring the traditional route to open a payment software company involves significant effort, time, and financial investment. Crafting your own payment processing software demands an initial investment ranging from $100,000 to $250,000, merely to develop a minimum viable product (MVP). Beyond this, you must navigate the acquisition of various financial licenses and compliance with numerous regulations. This substantial groundwork precedes any foray into marketing and sales to propel your startup into the competitive market.
In this challenging landscape, standing out requires an attractive and innovative offer to secure investments and, eventually, customers. The journey entails a prolonged development period of 12-18 months or more, encompassing market research, strategic planning, and the execution of a comprehensive sales and marketing campaign before your product sees the light of day.
Despite significant time and financial commitments, there’s a high risk of falling short of market expectations unless your product addresses a unique niche. The competitive benchmarks in the payments technology market are formidable, client expectations intricate, and customer allegiance hard to sway.
A more efficient and cost-effective alternative lies in the white-label route. Choosing the best white-label payment gateway vendor eliminates the need for substantial technology budgeting, providing top-notch tools for immediate processing capabilities, and allowing you to focus on capturing market share swiftly.
In the white-label model, you sell another company’s software under your brand, with end-users experiencing only your branding. You determine rates and terms, securing profits on each transaction alongside payment processing fees from banks and card networks. This approach enables you to concentrate on customer care and business growth, while your vendor manages the intricacies of maintaining and developing a secure SaaS platform.
By choosing the white-label route to start a payment gateway company, you not only gain access to a secure and sophisticated platform but also receive ongoing updates and features. You also don’t need to hire a technical team, as well as expenses for the setup and maintenance of infrastructure and software, and to obtain PCI DSS certification, which would require around $10,000.
To start a payment processing company, the cornerstones of success must go beyond conventional strategies. Market access, the first pillar, demands more than just choosing the right niche, it’s about weaving business acumen into the local fabric, securing not just sales but a lasting presence. The second pillar, competitive technology, involves a strategic alliance with tech partners who craft modern platforms born from diverse payment business experiences. However, the unsung hero, the third pillar, lies in forging the right banking partnerships. Even with triumphs in the initial two, an ill-suited banking alliance poses a considerable threat, emphasizing the role it plays in the overall success when you open a payment processing company.